The Best State to Set up a Trust

It’s very important that you have this seal, ensuring that no one will ever be able to find out anything about your trust if it were to ever come out in a court proceeding. A big part of my practice is dedicated to domestic asset protection trusts, and if you’ve watched any of my videos, you know I love South Dakota because it’s the best trust jurisdiction in the country—very competitive among jurisdictions even throughout the world. But when it comes to asset protection trusts, it’s the best.

I recently had a conversation with a prospective client. We discussed South Dakota trust planning, and they had done their own due diligence—research, talking to other attorneys, and consulting with local trust companies in Texas. Even though I help clients across the country with domestic asset protection trusts, the feedback they received was, “You should focus on Nevada.”

I asked them why, and they said they were told Nevada has the best domestic asset protection trust statutes. I responded, “Nevada is great, and both Nevada and South Dakota are known for being the premier trust jurisdictions in the country.” But then the client said, “I want to go with Nevada, not South Dakota.” So, I asked what changed their mind, and they told me that Nevada doesn’t allow for exception creditors, whereas South Dakota does.

To clarify, exception creditors are those who can have a personal claim against any assets you move into your domestic asset protection trust, but these creditors are defined by law—they’re spelled out, so we know who they are. The prospective client was correct that Nevada doesn’t have any exception creditors, meaning no one can pierce that trust when the planning is done correctly. On the other hand, in South Dakota, the exception creditors are for alimony owed to an ex-spouse or child support. But here’s the catch: the claims for both alimony and child support must have existed before you ever set up and funded the domestic asset protection trust.

Personally, I don’t want to help someone who already owes alimony or child support—I have moral and ethical issues with that. So, if someone comes to me with that particular issue, I can’t help them. Even though South Dakota allows for these exception creditors, it’s still the better option.

There’s an attorney in Las Vegas, Nevada, named Steve Oshins, and if you visit his website at oshins.com, you’ll find his rankings of the best trust jurisdictions within the United States. He focuses on four different aspects, but I want to highlight two that are relevant to this conversation.

The first is domestic asset protection trusts. According to his rankings, Nevada is number one, and South Dakota is number two. The only difference between those two is the exception creditor in South Dakota for existing alimony and child support. But again, if that’s not your situation, you don’t have any exception creditors that could come through.

However, what isn’t accounted for in that ranking is decanting. Decanting allows you to take assets from an existing irrevocable trust and move them to another trust—whether it’s a new trust or one that already exists. South Dakota has by far the most flexible decanting laws on its books compared to any other jurisdiction, including Nevada. This flexibility is crucial because it provides backdoor strategies to exit a domestic asset protection trust if it’s no longer working for the client. You’re not locked into something that doesn’t work for you long term. So, keep that in mind. South Dakota is also ranked number one for its decanting statutes.

Another aspect that doesn’t get much attention in the discussion about the best jurisdictions for domestic asset protection trusts is privacy—specifically, privacy and quiet trust laws. South Dakota has a rule that if any details of a trust come out in a court hearing in South Dakota, they’re automatically sealed and can never be made public. It offers the greatest level of privacy that an irrevocable trust can have.

Nevada doesn’t have anything like that on its books. Delaware has something similar, but it’s not nearly as strong—it allows a judge to put a seal on any trust-related details that come out during a Delaware court proceeding, but that seal only lasts three years. In contrast, South Dakota’s seal is perpetual, meaning it lasts forever. So, if creditor protection is important to you and you might be subject to lawsuits or creditors trying to enforce claims, having this perpetual seal is vital.

Additionally, you can eliminate the ability of any beneficiary—typically, you, the client, setting up the trust are the beneficiary, but sometimes you might designate someone else as a beneficiary—to access any information. Other states simply don’t offer this level of privacy. Between the flexibility of decanting and the strong privacy laws, these are the factors that push South Dakota above Nevada in every way.